Justice BV Nagarathna Calls For Inter-Ministerial Forum To Strategize And Handle High-Stakes Investment Arbitration Disputes

Justice BV Nagarathna of the Supreme Court on Saturday underscored the need for an interministerial forum to handle high-stakes investment arbitration disputes. She proposed that, instead of individual ministries addressing investment disputes independently, an interministerial forum should be established.

This forum, she suggested, would allow ministries to collaborate from the outset, ensuring a unified and strategic approach. She urged the government to build consensus at the initial stages of a dispute to develop a well-coordinated response.

“In fact, one of the questions was whether we have a SOP to deal with these matters in India. My only suggestion is, since the honourable Finance Minister is here, that there should be an interministerial forum. When the dispute arises, the ministries from this interministerial forum will take it up as a joint venture, so to say, rather than each ministry looking at it independently. Therefore, a need to have a consensus built at the very initial stage so as to have the strategy developed in the initial stage is very critical and important”, Justice Nagarathna emphasised.

The judge was addressing the inauguration of the 1st Post Graduate Certificate Diploma Course on International Commercial and Investment Treaty Arbitration offered by NLU Delhi. Former Supreme Court judge Justice Indu Malhotra and Finance and Corporate Affairs Minister Nirmala Sitharaman also addressed the event.

She also emphasized the importance of capacity building in international investment arbitration to engage with complex investment treaty disputes for the defence of the Country.

Justice Nagarathna noted that India has historically relied on foreign law firms for high-stake investment arbitration cases, despite the presence of substantial legal talent within the country. This dependence not only increases costs for the government but also places a significant financial burden on the exchequer, she said.

“This course, and several following its template, can play a pivotal role in developing subject matter expertise to help the Government deal with high-stake claims by engaging in consultation at an early stage rather than letting the matter gravitate to a sizeable dispute… By fostering a new generation of skilled and competent experts in the field of International Arbitration, this Course will empower Indian legal professionals to competently handle complex cross-border commercial disputes, reducing the dependence on external resources and talent, and also contribute to doctrinal development of unique perspectives that India can address, as a leader of developing countries”, she said.

Justice Nagarathna credited Justice Indu Malhotra for her role in advancing India's arbitration landscape and emphasized the course's aim to train legal professionals and government officers in handling international disputes. She highlighted the necessity of Indian investors receiving similar and adequate substantive protection under the Investment agreements entered into by India with other States, especially as India grows as both a capital-importing and exporting nation.

She noted India's first Bilateral Investment Treaty (BIT) with the UK in 1994 and subsequent agreements with 88 countries. While these treaties historically assured fair treatment and neutral dispute resolution, she stressed the need for continuous innovation.

Referring to the White Industries arbitration case against India in 2011, where the tribunal ruled against India due to delay in disposal of cases in the Indian courts, Justice Nagarathna remarked that the decision did not fully appreciate the India's legal system, which serves a population of over 1.4 billion people. She advised legal professionals and scholars to view such cases as indicators of the evolving nature of international law and dispute resolution.

Justice Nagarathna outlined India's BIT reforms, including the 2016 Model BIT, termination of 77 older treaties while preserving arbitration rights through “sunset clauses,” and issuing Joint Interpretative Statements with nations like Bangladesh, Colombia, and Mauritius to limit broad tribunal interpretations.

She noted that India is not alone in re-evaluating its investment treaty framework, with countries like Australia, Germany, Indonesia, South Africa, and several Latin American and European nations also taking a relook at their ISDS mechanisms.

Raising concerns over foreign investor claims that challenge government policies taken in the public interest, Justice Nagarathna cited international cases such as Philip Morris' challenge to Australia's tobacco regulations and Vattenfall's dispute against Germany's nuclear energy phase-out. She underlined that such cases raised questions about the legitimacy of the ISDS system and emphasized the need to balance investor rights with the country's interests.

“Disputes brought by foreign investors challenging policy decisions of the Government taken in public interest is a matter of serious concern. These disputes have raised serious doubts regarding the legitimacy of the process of dispute resolution itself. Addressing this legitimacy deficit is at the core of discussion on reforming the ISDS system. For, there has to be a balance between the interest of the foreign investors on the one hand and the country's sovereign interest on the other in a pragmatic way.”

Justice Nagarathna also highlighted challenges faced by developing countries in investment arbitration, citing the CDC v. Republic of Seychelles case. She described how Seychelles, a country with a population of 80,000 and limited resources, struggled to defend itself and lost against corporate claimants, facing a huge financial burden. She argued that such cases underscored the urgent need for developing states to build domestic legal expertise.

Justice Nagarathna stated that fostering expertise in international arbitration would reduce India's dependence on foreign legal counsel, cut government expenses, and contribute to the doctrinal development of arbitration law. She encouraged Chief Justices of High Courts to depute judges to undertake the course offered by NLU Delhi to improve judicial adjudication of investment treaty disputes.

“Capacity building initiatives such as this not only would build such confidence in the persons handling this branch of law but also enable to strategize better in future dispute resolution processes and consequently protect and enhance India's financial interest. I would recommend that the Chief Justices of all the High Courts in India would depute the High Court Judges to avail the benefits of this Course separately scheduled so as to adjudicate more effectively the cases which arise in this branch of law”, she said.

Concluding her address, she congratulated NLU Delhi and all stakeholders for launching the program.